News, Indian economy & everyday tit-bits by Ankur Aggarwal since 2005

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Monthly Archives: July 2018

In my view, Bullet Train Project for India is basically an elitist project, which conforms to the Indian ethos that 10% elites have a fundamental right to enjoy 90% subsidies. That is why, unlike other countries we don’t talk of Socio-economic ROR, but have tried to justify it by creating a number of Myths:

MYTH 1: It is almost free for India since 85% Project cost is being financed by Japan. The fact is that it is a bilateral loan at a concessional rate of 0.35% against prevailing negative interest offered by Japanese banks to their customers. Various economists have calculated that in the past effective rate of interest in rupee terms on Japanese long-term loans has varied from 12-18% because of a long history of appreciation of Yen and devaluation of Rupee, as between 2007 to 2012 yen appreciated from 35p to 70p. With a comparatively stable rupee, this may turn out to be only 6-8%, but it also comes with lot of strings which lead to substantial increase in Project costs. I think most of us have not forgotten KK line (against which we exported iron ore at throwaway rates) and DFC- Western corridor when we were forced to go for costlier option of electrification against earlier proposal of Diesel traction which was economical.

MYTH 2: It will be a Game –changer and propel India as a Technological Superpower. The fact is that no country in the world has become a Technological Superpower by purchasing technology, it can only become so when it is able to make quantum improvements in the technology stolen/acquired from abroad by its own R&D. As both Indian Private Sector and Govt are loathe to spend substantial amounts on R&D, this is out of question. Moreover, Japan who is by far the pioneer in Bullet Train Technology( 1964 vs TGV in 1987) has not succeeded in making any dent in International Market, how India can even dream to making any dent with second hand Technology at world’s highest rates.

Indian railways track record in this area is even worse, we are still carefully preserving, for our next generation, Technology acquired from LHB for 200 kmph trains two decade back.

MYTH 3: It is not a question of EITHER, it is basically AND (with other socio-economically useful Projects). The fact is that borrowing capacity of any country is always limited, so tying up almost Rs 1 trillion for this project will definitely deprive India from borrowings for other socio-economically useful Projects and there is no dearth of them for which foreign countries are willing to provide loans, it is only a question of Priorities.

MYTH 4: Like Metro Projects it will help in de-congesting our Mega-cities by spreading them geographically. The fact is that in this area HSR projects are anti-thesis of Metro Projects. Most of the residents and developers are very keen to have a Metro station at their door-steps, but HSR projects do not add value to land or real estate, rather they lower it because everybody says NIMBY (Not In My BackYard). This may be the reason why Shiv Sena is opposing it.

MYTH 5: Bulk of the Taxes come from Elite Class, so they have a Right to Possess such Fancy Toys. The fact is that the figures quoted by our friends in the Group are from CBDT, which deals with Direct Taxes only, in India two-thirds of the taxes still come from Indirect taxes ( GST + Petro- products) the burden of which is shared by entire population depending upon his/her spending capacity since most of the taxed items like mobile phone bills, building construction materials, tea, sugar, bidi/ cigarettes, petrol are consumed/ used by persons of all classes. We all know that a poor person in India spends his entire income whereas elites spend only a small proportion of their income, rest is saved. So, a poor person ends up paying a much higher portion of his earnings as Taxes.

Anyway, the best way of evaluating any Govt-funded project is to find out not its Financial ROR, but its economic ROR, which is the practice adopted all over the World